Many Americans struggle with their finances, and military members are no exception. The difference, however, can be compounded by the military lifestyle. It’s not uncommon, for example, for military families to move every few years, or for the servicemember to deploy away from his or her family for months at a time. These conditions can make it difficult on family members, particularly for military spouses who may have a more difficult time advancing in their career or finding work with frequent moves.
This is why Military Saves Week is beneficial for military members and their families. This program highlights the need for military members and their families to create a savings plan and reach their financial goals.
What is Military Saves Week? Military Saves Week is a joint program between the DoD and AmericaSaves.org, a non-profit organization chartered to help Americans make better financial decisions. Military Saves Week is designed to help bring awareness to good financial habits, saving, and investing. You can learn more at MilitarySaves.org, or learn more about a similar initiative called America Saves Week.
Military Saves Week
Each year, Military Saves Week highlights several actions people can take to set themselves up for a better financial future. These include setting up automated savings, investing for retirement, paying off debt, and more.
Here are some of the major points highlighted during Military Saves Week 2017:
Monday – Save Automatically
The easiest way to break out of the cycle of living paycheck to paycheck is to automatically save part of your paycheck each month, which forces you to live below your means. This is the principal of “paying yourself first.” I encourage everyone to set up some form of automatic savings plan, whether that is through a paycheck allotment from your military pay, or through an automatic bank transfer. Just make sure you have some money going directly into a savings account that you don’t touch unless it is for a specific purpose. Even small amount add up quickly, and before long, you will have a decent amount of money in your savings account that you can use for planned or unplanned expenses.
- How to Get Started: I recommend opening a bank account with a military friendly bank, such as USAA, PenFed, Navy Federal Credit Union, Chase Bank, or a similar organization. They have many financial products and services that are helpful to military members and their families. Once you open your account, you can set up automatic transfers from your paycheck or set up an allotment through myPay.
Tuesday – Family Savings Day
It’s common for one person to manage most of the finances in a family. But it’s important for everyone in the family to be on the same page. This includes spouses and children. It’s important to discuss financial goals, budgets, saving for retirement, and other financial decisions. Teaching your children about money is also a great idea, regardless of their age. The sooner your children learn about money, the better equipped they will be to make financial decisions when they are on their own.
I handle most of the finances in my family, but I have worked hard to automate our finances, and make it easy for my wife to step in if I am called up for duty, or if I am TDY or deployed. My wife and I have regular discussions about our finances to make sure we are on the same page.
- How to Get Started: Make sure to have regular financial discussions with your spouse or significant other. This makes it easier to identify common values and goals, and makes it spot and correct problems before they become too large. If you have children, involve them in age appropriate discussions, such as finding the best deals when grocery shopping, learning how to compare prices at department stores or at restaurants, and how to get the most value from your spending. As your children grow older, you can help them set up a budget, learn about taxes and investing, how to avoid taking on debt, and other important financial skills they should learn before moving out on their own.
Wednesday – Save for Retirement
The military retirement plan is one of the best around. However, only about 15-17% of military members remain on active duty long enough to earn the full military retirement. The vast majority of servicemembers leave well before they complete 20 years of service. That’s why it’s important for you to to take charge and start your own retirement savings. This will serve as an excellent head start, regardless of whether or not you earn a military retirement.
- How to Get Started: You can save for retirement while you are saving for other goals. The key is to find a balance. A great way to get started is to save a portion of your paycheck in your Thrift Savings Plan, or in a 401k or other employer sponsored retirement plan. Opening a Traditional or Roth IRA is another good idea, as both of these offer excellent long term tax benefits.
Thursday – Saving at Tax Time
Taxes can be complicated for military members. But there are also many saving opportunities with the various credits, exemptions, and other programs. There are also opportunities to save on your tax preparation through the base VITA program (Volunteer Income Tax Assistance), or through free tax software programs for military members or other promotions. Hopefully, you will end up with a tax refund when you file your return. Consider saving some or all of your refund if you receive one.
- How to Get Started: Gather your military tax documents and complete and file your tax return (TurboTax offers military discounts). Be sure to have a plan when you file your taxes. It’s easy to see your tax refund as “bonus money” and spend it like it’s free money. This is money you have already earned, and you should treat it the same way you treat your paycheck. Give the money a job (other than buying the latest gadgets!). I’m not saying you shouldn’t spend any of it. Just make sure you have a plan for the money, whether that is saving it toward a savings goal, funding part of your retirement, paying off debt, or something else.
Friday – Pay Off High-Interest Debt
Getting out of debt should be high on your priority list. I would first start by creating an emergency fund with at least $1,000 (see next step). Then I would systematically work on eliminating any high-interest debt you may have. For example, you want to pay off any credit cards or other loans with high interest rates. Paying off your debt does two things: increases your cash flow and gives you an automatic return on your investment. With more cash flow each month, you can pay off the rest of your debt more quickly, or increase your savings.
- How to Get Started: Make a list of all the debts you have, including the lender, the amount owed, the minimum monthly payment, and the interest rate. Having everything on one sheet of paper makes it easier to see how much you owe. From there, it is much easier to create a plan to pay off those loans. At the same time, it’s a good idea to commit to not adding any more debt while you are paying off your current loans. That means stop using your credit cards unless you can pay them in full each month, no new car loans, don’t finance new furniture, etc.
Saturday – Save for Emergencies and Military Life’s Changes
Creating an emergency fund is one of the most important things you can do from a financial perspective. The idea is to save until you have at least $1,000 saved in an account where you can access the funds in an emergency. $1,000 is a recommended starting point because it is large enough to help pay for most medium size emergencies, such as replacing an appliance, paying a car insurance deductible or for minor car repairs, a flight home for a family emergency, etc. Having these funds available can help you avoid using a credit card or taking out a high interest loan and digging yourself further into debt.
- How to Get Started: Your emergency fund should be separate from your main checking account. The key is to have access to these funds if needed, but not to be able to use them for regular spending. My wife and I use a checking account for the majority of our daily spending, and we have another online savings account with high interest rates for our emergency fund. Having the savings in a separate account keeps it available within a day or two through an electronic bank transfer, but it removes the temptation to spend it alongside our regular spending.
Bonus Tip – Save for a Large Purchase
Many banks and financial institutions are happy to give you a loan with little or no money down. Isn’t that wonderful of them? Don’t fall for it!
Making a large purchase with no money down does two things:
- increases the amount of money you have to borrow, and
- increases the amount of interest you pay over the life of your loan.
It’s almost always best to pay cash when possible, or at least make a large down-payment. It’s also a good idea to keep the loan terms as short as possible. In other words, don’t go for a 7 year car loan. Buy a less expensive car if you can’t afford a shorter term. Better yet, save up and buy a car with cash.
Buying a house is one of the exceptions to paying cash. Most people can’t buy a home with cash, and that’s OK. Home buyers often have the choice of a 15 or 30 year mortgage term. Buying a home with a 15 year mortgage is often a good idea if you can afford the monthly payments, but a 30 year mortgage may give you more long-term flexibility. Go with the one that best fits your budget, but always try to make a down-payment if you can. This will help reduce your payments and the amount of interest you pay over the course of your loan.
Final note about home loans: you can buy a home with no money down when you use a VA Loan. This isn’t usually recommended since it increases the amount of money you are borrowing. Always try to make a down-payment when possible.
Take Some Time, Create a Plan, Take Action
Everyone has a unique personal and financial situation. Because of this, there is no one-size-fits-all savings plan. It’s up to you to examine your situation and create a plan that works. But there is help available. Almost every base has someone who can help you look at your budget and find areas where you can cut back on your expenses so you can funnel that money toward savings or paying off debt. If you are no longer in the service, you can visit a fee-only financial planner or a non-profit debt-management organization to come up with a solution to help you reach your financial goals. The key is recognizing that you need a plan, and then taking action.
Take the Military Saves Week Pledge:
MilitarySaves.org created a pledge form, which states, in part: “I will help myself by saving money, reducing debt, and building wealth over time. I will help my family and my country by encouraging other Americans to Build Wealth, Not Debt.”
Sounds good to me! You can learn more here.